CEO Age, Risk Incentives, and Hedging Strategy

Croci, Ettore; Giudice, Alfonso Del; Jankensgård, Håkan

doi:10.1111/fima.12166

Cited by 62 publications

(55 citation statements)

References 65 publications

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“…We measure managerial risk incentive by their options vega (Chava and Purnanandam, ; Croci, Del Giudice, and Jankensgard, ), with the options valued using the Black‐Scholes () model . Tests are based on a sample of 26,579 Form 10‐K filings (firm‐year observations) covering 1993‐2015.…”

mentioning

confidence: 99%

Management Risk Incentives and the Readability of Corporate Disclosures

Chakrabarty¹,

Seetharaman²,

Swanson³

et al. 2018

Financial Management

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Managers with higher risk incentives (greater options vega) issue less readable disclosures. Firms in the top quartile of vega file annual reports that are about 15.4% more voluminous than those in the bottom quartile. The effect of vega on obfuscation remains after controlling for firm risk, operating complexities, accounting and auditor choices, chief executive officer changes, and an exogenous shock to option compensation. This effect is tempered by higher institutional ownership, lower management entrenchment, and greater analyst following. Obfuscation benefits managers by increasing return volatility (option value) and allowing greater earnings management. These findings document a new link between options and disclosure transparency.

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mentioning

confidence: 99%

Management Risk Incentives and the Readability of Corporate Disclosures

Chakrabarty¹,

Seetharaman²,

Swanson³

et al. 2018

Financial Management

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“…Yim () shows that younger CEOs are more likely to conduct acquisitions. Croci et al () find the propensity of using hedging strategies to reduce portfolio risk increases with CEO age. Axelson and Bond () suggest that adverse selection is more severe for younger CEOs, which incentivizes them to take more aggressive policies to avoid being labeled as “Low ability.” Bamber, Jiang, and Wang () show that certain disclosure style is more conservative for old managers.…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

CEO age and tax planning

James

2019

Rev Financ Econ

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This study investigates the association between CEO age and corporate tax planning. Using a sample of 11,537 firm‐year observations from the fiscal year 1997–2013, I find CEO age exerts an economically significant influence on firms’ tax policies, incremental to economic determinants identified in prior research. Specifically, CEO age is positively related to cash and GAAP effective tax rates, and negatively related to permanent book‐tax difference, suggesting that older CEOs are less likely to take actions to lower tax burden. The results hold across different model specifications and robustness tests to address potential bias arising from endogeneity, sample selection issue, and the confounding effect of CEO tenure.

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“…There is indeed substantial richness in terms of how firms hedge (Adam 2009;Croci et al 2017). Three main strategies are discernable in the oil and gas industry: a cash-financed insurance strategy 7 , a linear strategy 8 , and the collar strategy (Jin and Jorion 2006;Croci et al 2017). 9 Another way a derivative portfolio can be characterized is in terms of its maturity, i.e., how far out in time its positions are due.…”

Section: Selective Hedgingmentioning

confidence: 99%

“…Inside ownership furthermore increases the likelihood of a change in the dominant hedging style. Previous studies have shown that there is substantial variation in hedging style, which refers to the specific combination of different types of derivative instruments used (Adam 2009;Croci et al 2017). A high rate of change in hedging style (e.g., switching from using mainly forward contracts to options) is suggestive of selective hedging.…”

Section: Introductionmentioning

confidence: 99%

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Does Managerial Power Increase Selective Hedging? Evidence from the Oil and Gas Industry

Jankensgård

2019

JRFM

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This study examines the managerial power-hypothesis of selective hedging, which holds that selective hedging is observed more frequently in companies where managers have greater latitude to execute hedging proposals without serious scrutiny or questioning. The hypothesis is tested using hand-collected data on corporate governance and derivative positions from the oil and gas industry. The results support the view that managerial power increases selective hedging. The main governance dimension associated with selective hedging is the extent of inside ownership. Firms with high inside ownership have excessive variability in their derivative portfolios, were more prone to opportunistic behavior following the great rise in the oil price in the mid-2000s, and have lower realized cash flow from hedging.

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CEO Age, Risk Incentives, and Hedging Strategy

Cited by 62 publications

References 65 publications

Management Risk Incentives and the Readability of Corporate Disclosures

Management Risk Incentives and the Readability of Corporate Disclosures

CEO age and tax planning

Does Managerial Power Increase Selective Hedging? Evidence from the Oil and Gas Industry

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